2021 Tax Brackets and Income Tax Rates

The IRS has released the 2021 tax brackets and income tax rates, including tax deductions, tax credits and cost-of-living adjustments. These new tax rates are effective beginning January 1, 2021 and apply for the 2021 income tax year.

In this article, we will discuss:

• Tax Brackets and Tax Rates
• Standard Deduction
• Capital Gains Tax
• Alternative Minimum Tax
• Tax Credits and Tax Deductions

Tax Brackets and Tax Rates

In 2021, there are seven income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here is the breakdown depending if you file as:

• Individual Taxpayer
• Married Filing Jointly
• Married Filing Separate
• Head of Household

Standard Deduction

In 2021, the standard deduction will increase slightly to $12,550 for individual taxpayers and married couple filing separately. The standard deduction for married couples filing jointly will be $25,100. The standard deduction for head of households will be $18,800.

Capital Gains Tax

Capital gains taxes are taxes on the growth of the value of an investment when an individual sells that investment. Long-term capital gains is applied to assets or investments that held for more than one year. The long-term capital gains rates are 0%, 15% and 20%. Short-term capital gains is when an asset or investment is sold within one year or less. The short-term capital gains tax rate is the same as the ordinary income tax rate. The table below shows the maximum capital gains rate for 0% and 15%:

Alternative Minimum Tax

The Alternative Minimum Tax, or AMT, applies to taxpayers with higher income and ensures that these taxpayers pay at least a minimum amount of tax. These are the exemptions amount for the Alternative Minimum Tax for 2021:

Tax Credits and Tax Deductions

For 2021, there are many types of tax credits and tax deductions that are available. Here are several tax credits and tax deductions:

Child Tax Credit

For 2021, the child tax credit is $2,000 per child. However, there are phaseouts, including $200,000 of income for individual taxpayers and $400,000 for taxpayers who are married filing jointly.

Earned Income Tax Credit (EITC)

For 2021, the Earned Income Tax Credit (EITC) is a maximum $6,728 for taxpayers who are married filing jointly who have three or more children. Like the child tax credit, there are phaseouts based on income.

Itemized Deductions

Here are some popular itemized deductions:

• Home mortgage interest
• State and local taxes
• Charitable donations
• Medical expenses
• Job expenses

Above The Line Deductions

Here are several popular above-the-line deductions:

• Student loan interest deduction
• Charitable donations